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Essentials Of Business Law
Chapter 6
Introduction To Contracts
McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Essentials of Business Law Chapter 6-2
Contract
Legally enforceable agreement Between two or more parties Agree to perform, or to avoid performing
certain legal acts
Contains six elements
Only legal obligations, not social or moral obligations, are enforceable
Essentials of Business Law Chapter 6-3
Purposes Of A Contract
Sale of merchandise or services
Employment
Transfer of ownership of land or personal property
May be extended or otherwise revised
Essentials of Business Law Chapter 6-4
Elements Of An Enforceable Contract
1. Offer and acceptance Offer
• Proposal made by offeror to offeree• Indicates willingness to enter contract
Acceptance• Indication by offeree to agree to be bound by the
terms of the offer
2. Mutual agreement Clear understanding of agreement Meeting of the minds
Essentials of Business Law Chapter 6-5
Elements Of An Enforceable Contract
3. Consideration Exchange of promises Each party gives up something of value
4. Competent parties Capacity to understand Legal age Normal mentality Not impaired by injury, mental disease,
drugs, or alcohol
Essentials of Business Law Chapter 6-6
Elements Of An Enforceable Contract
5. Legality of purpose Purpose of contract must be legal
6. Proper form Must be in writing when:
• Over $500• Longer than one year
Essentials of Business Law Chapter 6-7
Types Of Contracts
Oral contract Created from the conversation of the parties
• Not in writing • Not signed by parties
Example: discussion of the terms of a purchase with a salesperson
Written contract Written in a permanent form Can be handwritten, typed, or printed Reduces the risk of possible disagreements later
Essentials of Business Law Chapter 6-8
Types Of Contracts
Express contract Explicitly states the agreement of the parties Can be oral or written
Implied contract Terms of the agreement are implied from:
• Conduct of the parties• Customs of the trade• Conditions or circumstances
Neither oral nor written
Essentials of Business Law Chapter 6-9
Types Of Contracts
Formal contract Written contract with a seal
Simple contract Informal contract without a seal Can be written, oral, or implied
Essentials of Business Law Chapter 6-10
Types Of Contracts
Entire contract Contains two or more parts Each part is dependant on the other Goods must be offered in a single delivery, after
which payment can be demanded
Divisible contract Contains two or more parts Each part is independent of the others Goods can be delivered in lots, payment can be
demanded for each lot
Essentials of Business Law Chapter 6-11
Status Of Contracts
Executory contract A future act or obligation remains to be
performed Completely executory if no part of the contract
has been performed Partly executory if some provision have been
performed
Executed contract Terms of agreement have been fully
performed
Essentials of Business Law Chapter 6-12
Enforceability Of Contracts
Valid contract Legally enforceable Contains six essential elements
• Offer and acceptance• Mutual agreement• Consideration• Competent parties• Legality of purpose• Proper form
Essentials of Business Law Chapter 6-13
Enforceability Of Contracts
Void contract Lacks one or more essential elements
Voidable contract May be rejected by one of the parties for a
legal reason Example: agreement with a minor